tv Nightly Business Report PBS May 17, 2011 7:00pm-7:30pm EDT
>> tom: new home construction takes a dive this spring. so, how long will the housing market be stuck in the basement? >> there are still pockets where it's very slow and areas where there is this tremendous backlog of foreclosures. i think until that situation gets worked through, it's very tough for the market to recover. >> susie: the housing market's tough time comes right as the spring selling season was supposed to bring out buyers. you're watching "nightly business report" for tuesday, may 17. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> tom: good evening and thanks for joining us. fresh worries about the housing market today. the spring selling season usually is real estate's busiest time of the year, but new data suggests it may not be off to a strong start. >> susie: tom, new-home construction data came in surprisingly weak. housing starts plunged in april by more than 10%, a sharp contrast to march, when they
rose by double digits. >> tom: with this volatility, buyers and sellers want to know, is the market getting better or worse? erika miller reports. >> reporter: if you want to take the pulse of the real estate market, pamela liebman is a good person to ask. she's the c.e.o. of the corcoran group, one of the nation's largest real estate brokers. liebman says low prices are luring in buyers, especially at the high end. >> they feel like the market has bottomed out, and that now is the prime time great opportunity to get the most you can for your money. these homes, in 2007 or the beginning of '08, at the height of the market, were 30% higher. >> reporter: but other industry experts believe the spring selling season will be disappointing. residential home sales fell 3% in the first quarter, the biggest decline since the darkest days of the housing recession in 2008. yes, interest rates are still at historic lows, and housing affordability is at a 20-year high.
but economist eric green says there's good reason for buyers to wait. >> confidence in the housing market is still very weak because housing prices continue to drift lower. so, when you are buying a house on a price-adjusted basis, you can make the case that housing is still actually expensive because what you are buying is an asset that most likely going to continue to depreciate slightly. >> reporter: plus, many homeowners who want to move can't because their mortgages are underwater. in other words, they own more on the loans than the properties are worth. not to mention that buyers face tighter lending requirements to get a mortgage. many buyers feel there's no reason to rush in, given the glut of unsold homes. >> there are still pockets where it's very slow, and areas where there is this tremendous backlog of foreclosures. i think until that situation gets worked through, it's very tough for the market to recover. >> reporter: supply is a clearly a big factor, but so is demand. and that depends on one thing. >> jobs, jobs, jobs will help cure this market.
>> reporter: here's a sobering statistic, home prices are down about 30% nationwide from their peak in june 2008, but industry experts predict home prices won't bottom until next year at the earliest. erika miller, "nightly business report," new york. >> susie: a difficult day for hewlett packard. shares plunged 8% after the company cut its outlook for profits and revenue for the year. investors also got the jitters when news leaked out about a memo from h.p.'s new c.e.o. warning about "tough times" ahead. these developments overshadowed h.p.'s better-than-expected second quarter results. it earned $1.24 a share, three cents more than estimates, and revenues rose slightly to $31.6 billion. joining us now, tom smith, equity analyst at standard & poor's. >> susie: hi, tom. >> hi, thanks for having me. >> susan>> susie: you downgraded h.p. from a strong buy to a hold. tell us why you made the
change. >> well, that's right. even though the company delivered a great quarter for the april quarter just past, they envisioned some lower -- some dampening of revenue on demand in japan, and higher costs from the need to hustle to procure parts made in japan that are now in short supply. but most telling was a warning that the margin outlook for the services portion of the business, which is fairly substantial, a quarter to a third of revenues, was going to be lower. that came sort of as a surprise. the company has been integrating acquisition, and it looks like there is more work to do in organizing their services business. >> susie: looking at a chart over the last year, the stock year-to-date is down 13%. some people might look at it and say this is a bargain. are you saying it is a little too risky given the uncertain outlook that we heard today? >> that's right. i'm taking sort of the
caution. i'm airing on the side of caution now. if you're a value investor with a longer term time horizon, you might begin to look at it as a value proposition. i think the company has the potential to turn things around, but the weakness in services margin structure i think will be a many-quarters proposition, at least two, maybe four, maybe longer, and with that uncertainty, i'm airing on caution. it cheap on a p.e. basis compared to other companies. >> susie: you mentioned a couple of the issues facing hewlett-packard. we have a chart here. let's pull it up. you mentioned the supply shortages from japan. the other thing is weak consumer p.c. sales, be you also mentioned its restructuring of the service business. so where is growth going to come from? >> growth is going to come, over the long run, by transitioning away from p.c.s, especially for consumers, which is a low margin business, and try to get into data center
products, and especially products that sell with each other. compatible products. storage, andñr services themselves. but the networking, the storage, and the software that go with it, both h.p. and dell have an enormous opportunity to add software and grow quite substantially in the margins if they can get there on software, which is quite substantial. >> susie: how about on the consumer side. i understand that h.p. is supposed to be coming out with its tablet computer, called the touch pad. it will compete with apple's ipad. how does it measure up? >> there is potential for improving their consumer hardware sales if they can get a line of tablets out that is popular. but it is a very crowded market. ipad has had two generations of product and who's a lead and a following. that's a tough competitor to go up against.
hewlett said today they would have a product out this summer. and that's on track. but they are a late entrance, and that's hard. i don't think that's going to move the needle all by itself. >> susie: i know you've been analyzing the earnings that came out from bell, and the numbers were better than expected. you upgraded that stock from a buy from a hold. it sounds like you're favoring dell over h.p. is that a fair assessment? >> that's my outlook now. both companies are coming from a p.c. or hardware heritage, and they're trying to get into the data center services, and they're both doing well, and they're both adding services. right now it seems like dell is having a smoother time integrating the services and improving their margin outlook. the surprise for me for deli was on the upside for
margins, and for hewlett it was on the downside. >> susie: an interesting turn of events. tom, any disclosures about dell and h.p. you want to share with us? >> right. i don't own the shares. >> susie: we'll leave it there. thank you so much for coming on the program. >> thank you. >> susie: we've been speaking with tom smith, equity analyst at standard and poor's. and tom will have more and tom will have more analysis on dell's earnings in tonight's "market focus." >> tom: here are the stories in tonight's n.b.r. newswheel: h.p.'s outlook and that grim read on the housing market led the blue chips lower. the dow fell 68 points, while the nasdaq gained almost a point and the s&p 500 off a fraction. trading volume rose from yesterday's pace, with 967 million shares moving on the big board and 2.2 billion on the nasdaq. april was a weak month for the nation's manufacturers as many faced parts shortages from the japanese earthquake. while the automakers were hard hit, the commerce department
says overall industrial production was flat in april. one of uncle sam's biggest tarp investments is detailing its plans to go public. ally financial says the u.s. treasury, which owns 74% of the lender, will convert almost $3 billion of preferred securities into common stock at the time of the i.p.o. ally plans to list on the big board under the ticker a-l-l-y. the i.p.o. is expected this summer. still ahead, tonight's "word on the street," "security." thestreet.com's james rogers joins us for a look at three stocks focused on cyber security. >> susie: one of the nation's busiest waterways has been shut down to help prevent more flooding. the coast guard closed the mississippi river at the natchez port today, because barges on the water could put more pressure on already strained levees. the interruption could cost the u.s. economy hundreds of millions of dollars a day. as darren gersh reports, the rising water is also putting financial pressure on a national flood insurance program that already faces a huge deficit.
>> reporter: thousands of miles have been flooded, and almost too many farms and homes to count. this is widely expected to be the most expensive flood damage since hurricane katrina, with a cost as high as $4 billion. the heritage foundation's david john says the price tag is another example of how federal flood insurance is not priced to reflect the true risk of a loss. >> this program has a monster deficit from hurricane katrina, and it has virtually no chance of repaying that deficit and now it is going to suffer still larger losses-- another quarter, perhaps, as large-- and this is just going to put it further under. >> reporter: the floods come as congress considers yet another round of reforms. the house make take up legislation as soon as next week to raise flood insurance premiums to better reflect the risk of flood damage. the bill would also increase deductibles on some properties. policy limits would also increase to match inflation.
national association of realtors economist paul bishop says the changes should make flood insurance more sustainable. >> from one particular year to the next, depending on the types of flooding events and the severity of those, there could be some net loss over a short period of time, but the goal over many years is to make sure there is no cost to taxpayers. >> reporter: critics argue the reforms, while helpful, don't raise costs high enough to match flood risk. they are also concerned congress is preparing to expand flood insurance-- adding coverage for living expenses and business interruption. steve ellis of taxpayers for common sense supports the reform effort, but says the expansion goes too far. >> when you're in a hole as deep as this-- a $17 billion hole-- it's time to stop digging and actually start filling it in, and adding new business lines is only going to increase the program's debt. >> reporter: the national flood insurance program takes in premiums of just over $3 billion a year, a fraction of its debt, which means the cost of this
scrtd -- investors have a lot to think about. >> tom: yes, they remain as dark clouds over the investment markets. between earnings and the economy, lots in focus here tonight. so let's get right here here to it with tonight's "market focus." >> tom: a quiet close to the trading day thanks the weak housing data and sour outlook from hewlett packard. with so much focus on h.p. today, the dow jones industrial average saw triple-digit losses at one point. just after 11:30 eastern time the dow was down by 162 points. pretty big headline number. it cut that by more than half before the closing bell. here's h-p-q and that 7% loss today. volume jumped seven-fold, with shares breaking down to a new 52-week low.
there it is, below $37. h.p. now trades below the sell- off last august, when former c.e.o. mark hurd was forced out in a scandal. let's go ahead and move on with dell earnings. while investors were focused on h.p. during the session, after the close that focus fell on dell's results. even though it experienced weakness similar to hewlett- packard in its consumer business, dell's gross margins jumped thanks to a drop in component costs, which is different from the story at h.p. morningstar analyst michael holt credits dell's performance to its remaking itself into a more complete computing company. >> it's the decision they made to try and reinvent themselves to go beyond being just a p.c. manufacturer and bring the intellectual property in house for intellectual storer for networking. specifically, holt points to dell's buyout of cloud computing
firm compellent earlier this year. after the close, shares jumped 5% from this closing number, up to within pennies of a new 52- week high. it's worth watching semiconductors. this is the past 90 sessions of the semi exchange traded fund. it took a small hit during the session, dropping to this breakout level last month. after the close, shares were higher on the dell news, as well as positive earnings from chipmaker analog devices. a-d-i shares have seen some profit taking over the past few sessions, but after beating estimates in the last quarter and a better-than-expected forecast, the stock was up 4% from this closing number. the drop in u.s. manufacturing last month helped make the industrial stocks the worst- performing sector today, led by caterpillar-- down almost 4%. this is cat's lowest price in two months.
alcoa shares fell almost 3% and 3m dropped almost 2%. materials and industrials weak today. home depot closed higher by 1% as volume doubled. it rebounded from yesterday's drop after disappointing results from competition lowe's and instead turned in more positive numbers. and here they are. results beat the street by one penny per share. revenues fell, but it more than made up for that by cutting costs. it's also ahead of plan on its stock buyback strategy. another big retailer, wal-mart, meantime, beat estimates by two cents per share, but u.s. stores continue struggling. higher product costs also hurt wal-mart's bottom line. shares fell 1%. this is the past 180 sessions. about six months worth of trading. price clearly weaker, but they remain above the low in march, which followed a disappointing earnings report-- also showing weak growth at its u.s. stores.
in commodities, the floodwaters and closing of part of the lower mississippi river to barge traffic helped send wheat and corn prices higher, but the bad housing numbers took lumber futures down. finally, with stocks sinking this week, we have seen bond prices move up. that has pushed bond interest rates down. here's the yield on the 10-year government bond is at its lowest level of the year, 3.11%. and that's tonight's "market focus."
>> tom: it has been a month since sony's online video game network was hacked, putting at risk the personal information of more than 100 million users. in recent months, an email marketer, the security division of data storage giant e.m.c. and sony have all been hit by hackers. tonight's "word on the street"? "security." james rogers is a reporter at thestreet.com. >> tom: are these breaches reasons to question if current security measures work at all? >> i think what we're seeing is we've got a lot more sophisticated and complex a tax now, and it's shining a light on this entire sector. there are companies that are well-positioned to benefit from this trend, though. >> tom: and one of those is the granddaddy, symantec, best known for software known as the norton antivirus. this stock was around 13 or so back on labor day, and now it is pushing close to 20. what's the potential. >> symantec is great for awareness, but it has been
under a lot of acquisitions. it hasn't had great execution in recent years. but the good news is the company is starting to turn things around. it put out good quarterly numbers last week and gave healthy guidance. it has a lot of scale. it has a lot of heft. the thing is, and what is keeping investors, a lot of people haven't latched onto this turn around company. >> tom: if there is such a thing as a household name in security is symantec and norton. but a lesser known name is fortinet. it has gone from the teens up close to $50 a share. significant growth in the share price and significant growth in evaluation. does it have much gas left in the tank? >> i think so. fortinet is one of my favorite security companies. they basically sell these appliances that do all different types of security functions. it is another company that put out good quarterly numbers and boosted its
cash position. the thing i really like about them, though, is they have a great multiple, particularly in comparison to other companies in this space. >> tom: and it's a little different because it is a device-maker when it comes to security, and not necessarily software. and the last analyst you speak is a software, websense sense. again, a possible catalyst, and could be a buyout because this is a smaller company? >> this firm was recently upgraded by the street and rated on the strength of its revenue and profit growth. it is doing quite well. it sells basically all different types of software for securing data. it could be e-mail and social networking, which we know is very big. there is a lot of talk this company could be in acquisition. a lot of the good security firms have been born, like the likes of intel and h.p. i think h.p. would be a logical suitor for this company.
h.p. is going out to expand on its security, and websense looks particularly attractive. >> tom: james' article is on thestreet.com. it's word on the street with our guest, james rogers. >> susie: here's what we're watching for tomorrow: the federal reserve releases the minutes and economic projections from its april policy meeting. on the earnings calendar, retailers abercrombie & fitch, limited brands and target are scheduled to report. also tomorrow, a look at teen employment. for young job seekers, it may be another summer with limited job prospects. the luxury shopper is making a comeback, if saks' latest earnings are any indication. the upscale retailer's net income jumped 51% from a year ago, and it sees continued sales growth for the rest of the year. saks earned $28 million or 17 cents a share in its fiscal first quarter. while sales are up, the company
says holding down costs is still a top priority. >> tom: b.p. and conoco phillips are dropping their denali project to build a natural gas pipeline from alaska to the lower 48 states. for months, the joint venture has been trying to sign shipping agreements to keep the project going. today, the firms said they couldn't spend the billions of dollars necessary to move things along without those agreements. a separate, yet similar, effort led by the canadian pipeline firm transcanada continues.
>> susie: with one of the worst labor markets in decades, many people are going into business for themselves. that's why tonight's commentator thinks black entrepreneurs will play a big role in growing the u.s. economy. he's alfred edmond jr., senior v.p. and editor at large at "black enterprise." >> recently, the white house kicked off national small business week by releasing the small business agenda, "growing america's small businesses to win the future," a report emphasizing the importance of supporting america's entrepreneurs. the work of president barack obama's administration in this area is of particular interest to black entrepreneurs, including the 1,000 or more who will be in atlanta for the 2011 "black enterprise" entrepreneurs conference.
the good news is that between 2002 and 2007, black-owned businesses grew by 60%, more than three times the growth of all firms over that five-year the bad news is that the jury is still out on how many of those businesses survived the great recession of 2008-2009. and for all of the celebration of small business as the engine of job creation, too many business owners in underserved urban communities don't see the connection between white house small business policy and the day-to-day trials and triumphs of running and growing their enterprises. joblessness is a burden on all americans, but is particularly pronounced in black and urban communities, making the success of entrepreneurs in those communities critical to our nation's economic recovery. when america wins the future, i hope to see black-owned small businesses at the victory party. i'm alfred edmond jr. >> for this tuesday, may 17th. good night, everyone, and tom, good night to you as well. >> tom: have a wonderful evening, susie. i'm tom hudson, and we hope to see you back here